PETALING JAYA: Bank Negara Malaysia has resumed monetary tightening after raising the overnight policy rate (OPR) by 25 basis points (bps) to 3% following its Monetary Policy Committee (MPC) meeting today.
The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 3.25% and 2.75%, respectively, BNM said in a statement today.
“With the domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalise the degree of monetary accommodation. With this decision, the MPC has withdrawn the monetary stimulus intended to address the Covid-19 crisis in promoting economic recovery.
“In light of the continued strength of the Malaysian economy, the MPC also recognises the need to ensure that the stance of monetary policy is appropriate to prevent the risk of future financial imbalances,” it added.
At the current level, BNM said the monetary policy stance is “slightly accommodative and remains supportive of the economy”.
The central bank had paused its rate hike cycle at its January and March MPC meetings after raising it by 100bps or 1% between May and November last year as inflation surged following the Covid-19 pandemic and the aftermath of the Russian-Ukrainian conflict.
At its MPC meeting in January, BNM surprised by hitting the pause button to maintain the OPR at 2.75%, after four consecutive 25bps hikes in 2022.
BNM previously said the decision not to raise the OPR was to allow it time to assess the impact of the past cumulative OPR adjustments, given the lagging effects of monetary policy on the economy.
In its statement today, BNM said the MPC will continue to ensure that the monetary policy stance remains consistent with the outlook of domestic inflation and growth.”
“As expected, headline inflation trended lower in recent months on account of moderating cost factors. Both headline and core inflation are expected to moderate over the course of 2023, averaging between 2.8%-3.8%,” it said.
However, core inflation will remain at elevated levels amid firm demand conditions. Existing price controls and fuel subsidies will continue to partly contain the extent of upward pressures to inflation.
“The balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy including on subsidies and price controls, financial market developments, as well as global commodity prices,” it noted.
As for the Malaysian economy, BNM said latest developments point towards further expansion in economic activity in the first quarter of 2023 after the strong performance in 2022.
On the macro level, it said the global economy continues to be driven by resilient domestic demand supported by strong labour market conditions, and a stronger-than-expected rebound of China’s economy. Nevertheless, the global economy continues to be weighed down by elevated cost pressures and higher interest rates.
“Headline inflation continued to moderate, but core inflation has persisted above historical averages. For most central banks, the monetary policy stance is likely to remain tight.
“The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and a sharp tightening in financial market conditions including from further stress in the banking sector,” said BNM.
Ahead of the MPC’s two-day meeting that started yesterday, a majority of economists polled by Bloomberg opined that BNM will not make any changes to the OPR.
The poll result released yesterday revealed 16 out of 18 economists expected the OPR to be maintained at 2.75%.
Only two financial institutions – the Bank of America National Association and Standard Chartered Bank – expected a 25bps rise to 3%.